Exam 20: An Introduction to Derivative Markets and Securities

Exhibit 20.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50. -Refer to Exhibit 20.7. The time premium for the put option with a $45 exercise price is

The price at which the stock can be acquired or sold is the exercise price.

Exhibit 20.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -A stock currently trades for $115. January call options with a strike price of $100 sell for $16, and January put options a strike price of $100 sell for $5. Estimate the price of a risk free bond.

Exhibit 20.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) On the last day of October, Bruce Springsteen is considering the purchase of 100 shares of Olivia Corporation common stock selling at $37 1/2 per share and also considering an Olivia option. -Refer to Exhibit 20.3. If Bruce decides to buy a March call option with an exercise price of 35, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?

Which of the following is consistent with put-call-spot parity?

Which of the following statements is true?

Exhibit 21.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Suppose you are a loan officer for a commercial bank and one of your clients has just approached you about a one-year loan for $4,000,000. Interest on the new loan will be paid at the end of each quarter based on the prevailing level of LIBOR at the beginning of each quarter. The LIBOR yield curve in the cash market is as follows: -Forward and future contracts, as well as options, are types of derivative securities.

A call option in which the stock price is higher than the exercise price is said to be

An option buyer must exercise the option on or before the expiration date.

Exhibit 20.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50. -Refer to Exhibit 20.7. The intrinsic value for the call option with a $45 exercise price is

Exhibit 20.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) On the last day of October, Bruce Springsteen is considering the purchase of 100 shares of Olivia Corporation common stock selling at $37 1/2 per share and also considering an Olivia option. -Refer to Exhibit 20.3. If Bruce buys a March put option with an exercise price of 40, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?

A call option is in the money if the current market price is above the strike price.

Exhibit 20.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share: -Refer to Exhibit 20.4. Assuming no commissions or taxes what is the annualized percentage gain if the stock reaches $50 in four months and a call was purchased?

The minimum amount that must be maintained in an account is called the maintenance margin.

Which of the following statements is a true definition of an in-the-money option?

Exhibit 20.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -A stock currently trades at $110. June call options on the stock with a strike price of $105 are priced at $4. Calculate the arbitrage profit that you can earn.

Which of the following is not a factor needed to calculate the value of an American call option?

Which of the following statements are true?

Which of the following factors is not considered in the valuation of call and put options?

Consider a stock that is currently trading at $20. Calculate the intrinsic value for a put option that has an exercise price of $35.